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Liability where cause of a product defect is unclear

In the recent decision of Muskoka Fuels v. Hassan Steel Fabricators Ltd., the Ontario Court of Appeal addressed the issue of liability, under the provincial Sale of Goods Act where a product had failed but no party (or expert) could explain why.

Hassan Steel manufactured and sold a fuel storage tank to Muskoka Fuels, which then distributed the tank to an end user. The expected service life of the tank was at least ten years, and its design had been approved by the Underwriters Laboratories of Canada, a third-party standards and testing body responsible for fuel tank requirements in Ontario. Less than five months after installation, the end user discovered an oil leak emanating from the tank, which was traced to a hole approximately 3/16 of an inch in diameter located at the bottom of the tank. The leak caused damage totaling $71,589.34.

The trial judge found that the hole in the tank was caused by a “microbally induced/influenced internal corrosion process” of unknown explanation. The trial judge excluded causes that might have been attributable to Muskoka Fuels, finding that the tank had been properly maintained, installed, and used only as intended. Muskoka Fuels commenced an action in negligence and for breach of the implied warranty of merchantability provided in the Ontario Sale of Goods Act. (Comparable provisions are found in legislation across the country.)

In upholding the trial judge’s finding of liability against the tank manufacturer, the Court of Appeal relied upon jurisprudence from the Supreme Court of Canada, which indicates that liability under provincial sale of goods legislation can be found in circumstances where the cause of the defect cannot be established. In Schreiber Brothers Ltd. v. Currie Products Ltd., the Supreme Court held that although a buyer bears the onus of proving the existence of a defect on a balance of probabilities, they need not establish “a credible theory to account for the defect.” Once a buyer has proved that the defect was not attributable to anything that he or she did or failed to do, an inference could be drawn from the evidence as a whole that the defect existed at the time the product was delivered.

The Court of Appeal found that the circumstances of the Muskoka Fuels case were much the same those as in the Schreiber case. In upholding a finding of liability for breach of the implied condition of merchantability, the Court of Appeal reiterated the important principle that in litigation for breach of implied conditions under sale of goods legislation, a precise explanation of how a product failed is not absolutely necessary. All a plaintiff needs to show is that a defect that caused damage existed in the product and that this defect was not caused by their actions.